No Taxes: Who pays?

GREENVILLE, N.C. - As you struggle to do your taxes and look for every deduction you can find, you will probably end up paying a lot more in taxes than you want.
    
But did you know, some of the biggest most profitable companies that do business in this country, indeed in this state, paid no taxes at all, and in some cases, paid less than nothing?
    
9 On Your Side did some investigating and the bad news is, with today’s political climate, there is virtually no chance to change that.

9 On Your Side asked a man filing taxes what he paid. He said $3,000 and when we told him Duke Energy and GE paid less than that in federal income taxes last year he said, “That’s not fair!”
 
And Duke Energy and GE aren't the only ones who don’t pay the 35 percent corporate tax rate.

A study by “Citizens For Tax Justice” says the majority of the Fortune 500 companies don't either.

Group Spokesman Matthew Gardner said, “These companies are paying about 18 percent in taxes on their profits, about half the legal rate."

In fact, he says 30 companies that made billions in profits paid less than nothing in taxes over the last three years; among them, Duke Energy, Dupont, Verizon, General Electric and Wells Fargo.

But Professor Joseph Hagan says tax avoidance is a right! He tells his graduate students at ECU, “By taking these things and hiding them in the tax law, politicians can say I cut your taxes.”

So, 9 On Your Side asked Gardner if loopholes are not illegal why should we care?

"They are shifting the cost of funding public investments from these companies to small business, to working families, to everyone else and that's a bad thing when we are in an economic downturn," said Gardner.

Hagan added, “I teach my students, a good tax system is, efficient, sufficient, convenient and fair.  Our tax system is not sufficient. It does not raise enough money, it is not convenient because it is so complex it's hard for the government to administer and us to comply with it, and it's not efficient because its affecting different industries in different ways and fair."

9 On Your Side called Tom Williams with Duke Energy and he pointed out Duke is just "aggressively" using the same deductions open to any business. A big one was the 'Bonus Depreciation Act" passed in 2008 by the Bush administration. It has been an incentive until this year. It allowed companies to take a windfall of full depreciation on equipment "now" rather than waiting and doing it over time.
 
Williams said, "I think that makes sense because we are a very capital intensive industry. We build big stuff that last a long time."

But did Duke avoid paying taxes?

According to Williams, he said, “All the taxes are paid ultimately you’re just able not to pay them immediately.”

But Gardner disagrees. He said, “What we see, year in and year out, with companies like Duke and a lot of these energy companies is they do find ways to keep postponing these taxes indefinitely.  Their taxes don't seem to be going up ever!"

And while Duke Energy made 5 billion dollars and paid no federal taxes during that time, Williams points out that Duke customers benefited. He says, they pay 10 to 30 percent less for power than the rest of the country.  But Gardner said that’s better than it sounds, “Any dollar of tax revenue that these big multinational corporations aren't paying, is a dollar that you and I have to pay, it's a dollar that small businesses have to pay.”
 
Often industry lobbyists will hand a lawmaker’s staff a pre-written law. The staff adds something, the lawmaker adds something and Professor Hagan said before you know it "it's so complex, the waters are muddy you can't see the bottom, you don't really know what's going on in the water." 

But lobbying Congress is legal and over three years electric utilities spent 1-and a half billion dollars to lobby their interest. Pharmaceutical and the insurance industry paid more.

“In many cases congress has enacted not just industry specific but company specific tax breaks. It is pitting some companies against their competitors and the high tax companies have every right to be angry about that,” said Gardner.

Hagan added, “We've got a wonderful tax system in that we ask the people to tell us what they owe and we generally take their word for it…but if they don't think they are being treated fairly, they are not going to comply. Do we wan to do incentives to spur the economy"? Sure we do!  But do them more honestly, more direct.”
 
Hagan teaches graduate students at ECU how to help corporations wring every dollar from the tax code.

”Nobody understands the tax law. If you want to hide something, hide it in the thicket, nobody can see what's going on, and so, that's why it has gotten so complex," said Hagan.

And while he says finding ways to lower your taxes is a God given right for Americans, there are some excesses

Gardner says not only are companies not paying the standard corporate tax of 35 percent, most are paying only half the rate. And 30 paid nothing at all over the last three years.

“This isn't a story about business vs. individuals. This is a story about a small number of highly favored companies that have a lot of lobbying power that have gotten tax breaks when their competitors have not.  It's an anti competitive, anti free market thing that's happening here,” said Gardner.
   
CTJ says the pharmaceutical, electric and insurance industries spent millions over the past three years lobbying Congress for favorable tax codes.

So what does NASCAR have to do with all of this?  Well, in 1986 during the Reagan administration, Congress simplified tax rules and did away with dozens of corporation tax shelters. But it wasn't long before Congress added a loophole allowing NASCAR track owners to write off that huge investment. 

“You will see little provision put into bill that will affect a very small number of tax payers,” said Gardner.

For instance, corporate jets.  If the C.E.O. takes the corporate jet from Washington to LA to see family and it’s not a business trip, tax law says he has to pay, but not for the cost of the actual flight. The law says he has to pay the price of a first class ticket a little more than 2,000 dollars, even though it cost more than 15-thousand dollars to make the trip in the corporate jet.

Now, big companies are lobbying for another tax holiday. Hagan said we’ve created this ourselves, “Right now we have a real problem we've built this dam  for corporation that have earned money in foreign countries, they want to bring the dollars back but if they do they'll be taxed now. So what is the recommendation going around now? Let them bring it back tax free." 

In a phone interview Williams of Duke Energy told 9 On Your Side why, “There is 1.2 trillion dollars of received earnings sitting off shore. And we pay taxes on those earnings in the countries where we operate. To bring those back to the U.S., we'd have to pay another major tax of about 35 percent so in effect it's a double tax.”  

In 2004 the Bush administration and Congress agreed to a tax amnesty. And let companies bring money back to the U.S. and pay only a 5 percent income tax.  But Gardner said that didn’t work, “One of the biggest and most infamous beneficiaries of the 2004 tax break was Hewlett Packard, which subsequently fired a lot of people. They reduced their U.S. employment as a result of this repatriation measure.”
 
But Williams said the company will use the money wisely, “We would put it to work to accelerate our capital programs, to build new environmental controls and new power plants and new smart wear technology.”

But the National Bureau of Economic Research found little if any of the 2004 profits went to hire more workers. Most went to pay dividends to the share holders and Gardner said that’s a bad precedent, ”The message that sends to companies about what they should do, is they should shift their profits overseas to a tax haven and just wait until the next tax holiday.”

So is it fair for a company as big as Duke to get away with paying no income taxes on 5 billion dollars in profit?

On the surface it may not sound like it, but the fact is Duke employs 18 to 20 thousand people. Successful businesses put people to work.
      
And when you file taxes, you have an absolute right to get every deduction you are entitled too even if you pay less than your neighbor.
    
Finally, here is why this story and the idea of corporate tax reform is so important.
      
With today’s economy, citizen’s groups estimates corporate tax shelters cost the U.S. Treasury 18 billion dollars a year.